€58.90 cap on Italian gas used to generate electricity for 18 months
Key Facts
The Italian government approved a temporary cap of €58.90 per megawatt-hour on the cost of gas used to generate electricity, starting January 1, 2027. According to S&P Global Energy, the measure was approved late on November 9 and aims to limit the pass-through of gas price volatility to electricity bills. Energy Minister Gilberto Pichetto Fratin said the package of measures would reduce prices by an average of about €15 per megawatt-hour. The decision is part of a broader package that includes an €850 million reduction in system costs, alongside a measure to support gas liquidity at Italy’s northern border. The cap is set to last 18 months, with a gradual phase-out at the end of that period.
The cap mechanism is based on the Dutch TTF day-ahead gas price, according to S&P Global Energy. Under it, the government compensates gas-fired power plants for the gas they consume when its price exceeds the set limit. The compensation aims to ease the pass-through of higher fuel costs to electricity prices while keeping gas-fired plants within the pricing mechanism. Setting a duration for the measure means the intervention is designed to be temporary: it begins in early 2027 and lasts 18 months. Prime Minister Giorgia Meloni said the gradual exit from the cap is intended to avoid sudden changes when it expires.
Alongside the cap, the package includes an auction for a gas-liquidity service at the northern border and an €850 million reduction in system costs. Meloni said the intervention also aims to limit market distortions and volatility in cross-border electricity exchanges. The prime minister described rising energy costs as “a structural problem that requires concrete decisions,” noting that addressing it requires intervention in the mechanisms driving those costs. She added that it would take time for the package’s benefits to emerge, meaning its effect on bills depends on the measures being implemented. The package includes energy producers bearing part of the funding, prompting their objections to the measures.
The decision followed a rise in European gas prices in previous months: the benchmark front-month gas contract exceeded €104 per megawatt-hour in October before falling to about €82 on November 9. In the first half of 2026, Italy’s national average electricity price reached €127.2 per megawatt-hour, up 6.4% from €119.5 in the same period of 2025. Edison linked higher thermal generation costs to rising gas prices associated with the outbreak of conflict in the Middle East at the end of February 2026. These figures provide the backdrop to the government’s decision to intervene in the link between gas costs and electricity prices. But the cap’s effect on bills will not be immediate, according to Meloni’s statement that the package needs time to deliver benefits.
Gas remains the leading source for meeting Italy’s electricity demand, while renewables accounted for about 48% of total electricity generation in 2025, according to a report by the Ministry of Environment and Energy Security cited by ANSA. The agency said electricity generation from gas rose compared with 2024, without giving the reported renewables share as a share for gas. In a separate economic development, Italian industrial production rose 1.2% in September compared with August, but fell 0.1% year on year, according to national statistics institute Istat in data published on November 11. The figures place the government’s move in an economy where monthly industrial production improved alongside a slight annual decline. The gas cap takes effect on January 1, 2027, and the mechanism will run for 18 months before being phased out gradually.
The measure drew criticism from parts of the energy and environmental sectors. Energy producers objected to bearing part of the measures’ funding, saying this restricts their ability to pass costs on to consumer bills. Climate group Eco said the measure “will only marginally reduce household electricity bills” and keeps Italy tied to an energy system that relies on fossil fuels. These objections put the expected impact on households at the center of the debate over the cap, alongside its cost to producing companies. The government says phasing out the measure gradually will limit sudden changes when it expires.